HDFC to merge with HDFC Bank – Why?: Mortgage lender HDFC has announced merger with HDFC Bank on Monday – 4th April 2022. The merger of two financial behemoths – HDFC Ltd and HDFC Bank comes following speculation around the same and has set the stage for one of the biggest deals in the Indian financial sector. Following the announcement of the merger, the stocks of HDFC twins sent soaring, rising nearly 15% during the early trading hours on Monday. While the merger has been announced today, the process is expected to take around 18 months to complete the transaction, subject to completion of regulatory approvals and other customary closing conditions.
HDFC Ltd and HDFC Bank Merger Plan
Probably biggest corporate news for the year. HDFC merging itself into HDFC Bank. pic.twitter.com/Ap0xeForbR
— D.Muthukrishnan (@dmuthuk)
April 4, 2022
With the merger announced just today morning, details about the detail and the terms of the actual transaction are still being finalized. To provide clarity about the HDFC, HDFC Bank Merger details, some of the key highlights are listed below:
- Merger Plan and Transaction: As per the deal, HDFC Ltd with AUM of Rs 5.26 trillion will merge with HDFC Bank with market cap pf Rs 8.35 trillion.
- Share Swap Ratio: All shareholders of HDFC Limited will receive 42 shares of HDFC Bank for every 25 shares of HDFC Ltd.
- Change of Ownership: Following the execution of the transaction, any shareholding of HDFC Ltd in HDFC Bank will be dissolved and the Bank will become a 100% publicly owned entity. Existing share holders of HDFC Ltd will own 41% stake / shares of HDFC Bank.
Why did HDFC Ltd and HDFC Bank decide to merge?
There are different reasons because of which HDFC group has decided to merge its two biggest financial assets – HDFC Bank and HDFC Ltd. The key among them are discussed below:
Build Competitive Portfolio for Housing Loans
According to official update, one of the key reasons for merger of HDFC Ltd – India’s largest housing finance company and HDFC Bank – India’s largest private sector bank has been announced to allow HDFC Group to build a highly competitive portfolio for housing loans under its banner. Currently, HDFC Ltd is one of the largest mortgage companies in the country with Assets Under Management (AUM) worth Rs 5.26 trillion and a market cap of Rs 4.44 trillion. On the other hand, HDFC Bank has a market cap of market cap of Rs 8.35 trillion. As part of this merger, HDFC Bank will also take over the subsidiaries and associates of HDFC Limited as well.
Cross-Sell Products to Large Customer Base
According to media reports, merger of HDFC Ltd and HDFC Bank will allow the group to consolidate its users and cross-sell products to a large customer base. The merger is aimed at enhancing their reach and distribution capabilities to urban, semi-urban and rural geographies.
Reduce Unsecured Loans
Another key advantage of merging HDFC Ltd – primarily a Mortgage lender and HDFC Bank – a full-fledged private banking entity, will allow the group to reduce their unsecured loan burden. The merger will create more opportunities for the in-Housing Loans domain while also allowing bank to push its credit card and personal loans products to the combined customer base.
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